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Name Headquarters Employees CEO : : : : Starbucks Corporation (NASDAQ: SBUX) Seattle, Washington, U.S. 176,000 in 2008 US$10.383 billion Howard Schultz (Founder of Starbucks coffeehouse)
Revenue for 2008 :
Starbucks Corporation is an international coffeehouse chain based in Seattle, Washington, United States. Starbucks is the largest coffeehouse company in the world, with 16,120 stores in 49 countries, including around 11,000 in the United States, followed by nearly 1,000 in Canada and more than 800 in Japan. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks, and items such as mugs and coffee beans. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. Starbucks’ Italian style coffee, espresso beverages, teas, pastries and confections had made Starbucks one of the greatest retailing stories of recent history and world’s biggest specialty coffee chain. In 2003, Starbucks made the fortune 500.
Strategic Management PMS 3393
1.1 BACKGROUND OF THE COMPANY
1.1.1 Era before Howard Schultz In 1971, three academics, English Teacher Jerry Baldwin, History Teacher Zel Siegel and writer Gordon Bowker opened Starbucks Coffee, Tea and Spice in Touristy Pikes Place Market in Seattle. The three were inspired by entrepreneur Alfred Peet (whom they knew personally) to sell high-quality coffee beans and equipment. The store did not offer fresh brewed coffee by the cup, but tasting samples were sometimes available. Siegel will wore a grocers apron, scooped out beans for customers while the other two kept their day jobs but came by at lunch or after work to help out. The store was an immediate success, with sales exceeding expectations, partly because of interest stirred by the favorable article in Seattle Times. Starbucks ordered its coffee-bean from Alfred Peet but later on the three partners bought their own used roaster setting up roasting operations in a nearby ramshackle building and developed their own blends and flavors. By the year 1980s the company had four Starbucks Stores in Seattle area and had been profitable every year. Later on, Siegel left the company and Jerry Baldwin took over day-to-day management of the company. Gordon Bowker remained as an owner but devoted most of his time in his Design Firm. In 1981, Howard Schultz, the vice president of U.S operations for Swedish Maker of stylish kitchen equipment and coffeemakers decided to pay Starbucks a visit. He was curious about why Starbucks was selling so many of his company products. He was impressed with the company management and the quality products the make. Schultz asked Baldwin whether there was any way he could fit into Starbucks and it took long time to decide his request. He tried many times till one day he was given a job of heading marketing and overseeing the retail stores.
Strategic Management PMS 3393
1.1.2 Era with Howard Schultz Howard Schultz spent most of his working hours in the four stores learning the retail aspects of the company business; Schultz was overflowing with ideas for the company. His biggest inspiration and vision for Starbucks future came during 1983 when the company sent him for an international house wares show to Milan, Italy. There he spotted an espresso bar and went to take a coffee. He was impressed with the coffeehouse services and decided to stay at Milan for a week to explore all coffee bars and learned as much as he could about the Italian passion for coffee drinks. He made a decision to serve fresh brewed coffee, espressos, and cappuccinos in its stores and try to create an American version of Italian coffee bar culture. He shared his idea with Baldwin and it took nearly a year to convince Jerry Baldwin to let him test an espresso bar. In April 1984, the first espresso bar was opened and it was a successful too. Yet Baldwin felt something is wrong. After Schultz failed to convince Baldwin for the expansion of business, he left Starbucks in 1985. Schultz started the “Il Giornale” coffee bar chain in 1985 and the coffeehouse was very successful. In 1987 Starbucks owner Jerry Baldwin and Bowker decide to sell the whole Starbucks chain to Schultz's Il Giornale, which rebranded the Il Giornale outlets as Starbucks and quickly began to expand. Starbucks opened it’s first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois, that same year. At the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165 outlets. In 2009 The Company plans to open a net of 900 new stores outside of the United States.
Strategic Management PMS 3393
2.0 STARBUCKS’ VISION, OBJECTIVES AND MISSION
2.1 Vision Statement Starbucks vision statement is; ” To establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employee could be proud of “ The vision statement clearly describes the dream or the future of the company that is to be the worlds most well known coffeehouse and also to be the most appreciated and positively graded brand by all levels of people around the world. The company also focuses its vision to employee satisfactions, so that the employees will be happy. 2.2 Objectives of Starbucks Is to Grow by making employees feel valued
Starbucks approach the employee with good compensation and comprehensive benefits package. The company beliefs that sharing the company’s success with the people who made happen will help them think and acts like an owner of the company. Is to Recognize that every dollar earned passes through employees’ hands Starbucks will always appreciate the employee as the revenue which is increasing every year is by the efficient and hardworking employees. This drastic increase in profit is not recognized without the support of the employees who attracts the customers to a long term relationships with the coffeehouse.
Strategic Management PMS 3393
“Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. roasting and fresh delivery of our coffee.3 Mission Statement Starbucks Mission Statement is. 3. benefits and opportunities for personal development to help gain employee loyalty and become difficult to imitate. 2. Contribute positively to our communities and our environment 6. Develop enthusiastically satisfied customers all of the time 5. 4.” The six principles are: 1. Apply the highest standards of excellence to the purchasing. Provide a great work environment and treat each other with respect and dignity. Recognize that profitability is essential to our future success. Embrace diversity as an essential component in the way we do business. 2. Strategic Management PMS 3393 5 . Paying scale and fringe benefit package allowed it to attract motivated people with above average skills and good work habits and also to make the employee to be loyal with Starbucks. Use the pays.
5. profitability and growth Philosophy Self-Concept Concern for public image Concern for employees COMPONENT YES/NO Yes Yes Yes No Yes Yes Yes Yes No This is a good mission statement.3. 3. 6. This mission statement lacks of 2 components: Technology and Concern for employees. it still have to add it in mission statement.2 Proposed Mission Statement Strategic Management PMS 3393 6 . Customers Products or services Markets Technology Concern for survival. 4.1 Analyzing the Mission Statement Component Starbucks mission statement is needed to be analyzed to see the total number of mission component it has.3. The company must evaluate whether it is technologically advanced and even though the company’s vision is concern to employee. 9.2. 7. 8. 2. 2. NO 1.
4. The six principles are: 1. Apply the highest standards of excellence to the purchasing. Provide a great work environment and treat each other with respect and dignity. Recognize that profitability is essential to our future success. 3.Establish Starbucks as the premier purveyor1 of the finest coffee in the world and also to be established as the most employee valued company while maintaining our uncompromising principles as we grow together with technological advances. 3. Develop enthusiastically satisfied customers all of the time 5. roasting and fresh delivery of our coffee. Embrace diversity as an essential component in the way we do business. Contribute positively to our communities and our environment 6. 2.0 SITUATIONAL ANALYSIS 1 Purveyor means provider Strategic Management PMS 3393 7 .
there must be an allocation of funds for the retiree to support there families in life long. The borders between various countries are getting invisible. Since the world is facing crisis. trouble free operation of products is becoming more important. Taking all aspects including tax rates.1.1 External analysis 3. The basic need for globalization is to learn the different cultures of the country they plan to start business.1 PEST Analysis Political Globalization today has changed worldwide trend of doing business. Companies are nowadays creating business in various countries without boundaries. Social. immediate availability. law and legislation is important in globalization. it creates different type of consumer and consequently needs for different products. Companies find it difficult to survive by relying solely on domestic market. In the view of social. Price is becoming priority to customers. and different strategies. Improved customer service. The number of two income households is getting increased all over the world. Provide Strategic Management PMS 3393 8 . employees should have benefits. after retirement for the group of baby boomer. Economic People are nowadays looking for more income to continue their luxurious life. different services. People are looking forward for products which reduce their time to be spent on. Consequently. people are looking forward for cheap and quality products. Company strategists find it not an easy task to expand the business beyond borders.3. Demographic and Environmental According to these analyses. Advertisements are all over the world for many products. Increase in the inflation rates and increase in unemployment is also a factor for demand in lower priced products. Cultural.
For example. Revolutionary technological changes and discoveries are having a dramatic impact on organization. among customers because producing the products with quality flexible price for the rich and middle class family. Next. In contrast. Technological Mass communication and high technology are creating patterns of diverse cultures worldwide. POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCT 3. High technology of the Machineries can increased the supply of the products while achieve a better profits for the organization. People are also looking forward for free chemical products. This means that the product is free from chemical or additional flavor mix and it is made from natural products. Internet is the world information spread machines that have covered an interaction from one user to another user. A cultural connection is created. advertising products into facebook so that the users can consume on their products .2 Porters five Forces BARGAINING POWER OF SUPPLIERS RIVALRY AMONG COMPETING FIRMS BARGAINING POWER OF CONSUMERS POTENTIAL ENTRY Strategic Management PMS 3393 OF NEW COMPETITORS 9 . advertising through have brought high achievement into marketing strategy.benefits such as Medicare and Medicaid retirement beneficial.1. Advancement of the technology can cause the life cycle of the product changed and increased in the distributing of the products. products are produced in globally must convenience and attractive to be used by any customers. this option it will create less hassle to customer for purchasing the products which they needed.Online purchasing.
Potential entry of new competitors 2. Rivalry among competing firms 5. Bargaining power of suppliers 4. Potential development of substitute products 3. The big corporation firm such as Starbucks needs a systematic and effective external-audit system because external forces among foreign countries vary so greatly. The analysis of the Competitive can be divided into Porter’s Five-Forces. market development and organization Strategy accompanied with the good intuitive judgment.The Radial Diagram above is Porter’s Five-force model. It helps the Company’s strategists to evaluate the industry growth. Bargaining power of consumer Strategic Management PMS 3393 10 . The five forces are as follows: 1.
Starbucks have gone through this situation when the world coffee bean price increased by the suppliers in 2001. Nowadays coffees are being canned or bottled. The bargaining power of supplier affects the intensity of competition in an industry. Other factors also have a major impact on the substitutes. It is best to have a mutual agreement between the supplier and the buyer.Potential entry for new competitors shows a balance between different firms competing in a market. There is potential of $125. A potential development of substitute products also develops an environment of competition in the market among the competing partners. canned product is the ultimate choice. It also refers whenever a new partner enter into a market. McDonalds is able to add specialty coffee to their existing services to tap into the specialty coffee market. Starbucks new competitor is the McDonalds’ “McCafe”. As all the new entries and existing firms are competing with each other so the new entry will definitely make an effect on every one transacting in the market. Strategic Management PMS 3393 11 . Starbucks have no choice but to buy at expensive price from the suppliers. There is a great deal of risk of entry by potential competitors due to the low start up costs. The option to buy bottled coffee is also inexpensive compared to coffee in a mug at the Starbucks store.000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market. With the focus on time management. As all firms want to compete in term of quality and substitute will lasts for longer in the market if the quality of the substitute will be greater than the existing alternate. they may become threat for one and opportunity for other competing partners. Collective bargaining power of supplier is if vendors are less in the market and the organizations that have to purchase from those vendors is high. The demand for those suppliers will be more as the firms have to purchase from that less suppliers.
latte and espresso machines. there was 14000 specialty coffee outlets in U. Starbucks primary competitors were restaurants. Starbucks feels that their excellence services and the high quality of their coffee is the biggest strength of them. When customer are concentrated or large or buy in volume. This may arise when the consumers can inexpensively switch to competing brands.Later on. they bargaining power represent a major force affecting the intensity of competition in an industry. There is more bargaining power for suppliers of technological innovations such as automated coffee machines. supermarket and all other stores selling hot and cold coffees. etc because there are not as many suppliers for such equipment as there are for coffee beans. Starbucks also faced competition from nationwide coffee manufactures that distributed their coffee through supermarkets pricing them cheaper compared with Starbucks. The rivalry among the competing firms is the most powerful of the 5 competitive forces. Porter’s Five Forces Table Strategic Management PMS 3393 12 . Anyway. specialty coffee shops.S itself. In 2003. doughnut shop. Other than this Starbucks may lower their prices or add more features in their stores and may also increase their advertising all around the world. The sheer scale of Starbucks’ business reduces the bargaining power of any single group of buyers. Starbucks may pursue a backward strategy to gain control or ownership of suppliers. Customers did not really have bargaining power when it came to premium coffee such as Starbucks. Starbucks decided to prepare an agreement document regarding to purchase coffee beans at a fixed price. Last but not least is the bargaining power of consumer.
000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market. Potential development of HIGH Water is a substitute which is healthy for us and it is free.3 Competitive Profile Matrix Starbucks Caribou coffee Gloria Jean’s coffee Strategic Management PMS 3393 13 . customers taking convenience is a major factor Potential of new competitors There is a great deal of risk of entry by potential competitors due to the low start up costs. With the focus on healthier living. Restaurants are opening earlier LOW and closing later to accommodate customers on the go. water is the ultimate choice. McDonalds is able to add specialty coffee to HIGH their existing services to tap into the specialty LOW coffee market. latte and HIGH espresso machines.Porters five Forces Rivalry Among Competing Firm Details Industry profitability There is intense competition in the coffee market amongst established coffee shops that are fighting to get customers. The sheer scale of Starbucks’ business reduces the bargaining power of any single group of buyers. Bargaining power of suppliers substitute products There is more bargaining power for suppliers of technological innovations such as automated coffee machines. etc because there are not as many suppliers for such equipment as there are for coffee beans LOW Bargaining power of consumers HIGH Customers did not really have bargaining power when it came to premium coffee such as LOW Starbucks. With the 85% their North coffee American to go. There are local coffee shops offering specials to lure potential HIGH customers in.1. The option to buy bottled water is also LOW inexpensive compared to coffee. 3. There is potential of $125.
51 3.05 0.24 0. Employee benefits 0.20 0. but does release valuable information in comparison to their competitors on the CPM. The product quality (0.08 0.CRITICAL SUCCESS FACTOR Advertising Product Quality Price Competitiveness Management Financial position Customer loyalty Global expansion Employee benefits Customer Service WEIGHT (WT) RATING WT SCORE RATING WT SCORE RATING WT SCORE 0.05 0.20 0.60 0.24 0. Starbucks score on this factor as the highest in comparison to their two chief competitors.34 2.15 0. Caribou and Gloria and reflecting a distinctive competitive advantage in the market.50 4 3 3 2 3 2 2 2 2 0.00 4 4 2 3 3 3 4 4 3 0.40 0.15 0.10 and global expansion 0.4 External Factor Evaluation Matrix (EFE) Strategic Management PMS 3393 14 . The competitive profile matrix (CPM) weighs product quality.50 3 2 3 3 2 2 2 2 2 0.10 0.15 0.20 0.40 0.60 0.1. 3.20 0. on CPM does not reflect a high level in ranking the critical success factors.40 0.17.10 0.30 0.10 0.80 0.15 0.10. Starbucks rates and scores the lowest on the price competitiveness factor.30 0.23 TOTAL Starbucks shown highest score and the second highest were Caribou Coffee and Gloria Jean’s coffee shows the lowest Score. 0.30 0.20 0.40 0.10 0.15 0.20) and is the most important item on the list of critical success factors.30 0.15 replicates a high level of importance on the CPM. Customer service 0.16 0.34 2. The advertising weight.17 1.10 0.
11 Weight of TWST=0. Strategic Management PMS 3393 15 . Many companies are pricing their products cheaper to impress customers.60+0. Increase in hypermarkets and economical supermarkets and healthy 0. Demand for non-chemical products.15 0.78 External Evaluation Matrix comprises of 2 lists.10 0.20 0.25/0.30 =1. Express foods are getting famous to reduce time to be spent.6+0.60 0.10 Rating Weighted 4 3 2 3 Score 0. Threats Increase in the inflation rates creates a demand in lower priced products. where 1 is the lowest and 4 is the highest.20 =1. In this case.3+0.452 = 2.30 international market People are looking connections.20 2.40/0. it is an opportunity.15 0. Both are important for the company.10 1.45 = 3.2+0.60 0.30 0.55 Weight of TWSO=0.10 0. The factors are rated from 1 till 4.Key External Factors Opportunities Globalization makes it for easy cheap to enter internet Weigh t 0.00 3 3 2 0. The most important factors maybe a threat or an opportunity.45 0.45+0. The highest weight is assigned to the most important factors or several very important factors.20 0. It’s identified as the opportunities and threats of the company.
Starbucks must find the way to reduce the threats to focus on the future challenges. is more effective in addressing the Opportunities . Anyway.Still. Since the total weighted score is 2.1 Financial Analysis A) Projected Income Statement Fiscal Years 2003-2005 Strategic Management PMS 3393 16 . Globalization makes it easy to enter international market is a good opportunity for Starbucks. It is known that the factors which carries most weight is the factor that most to be address. there are still opportunities to increase the growth of the company. the most critical factors are that many companies are pricing their products cheaper to impress customers. this is subject to further analysis of individual weighted score of opportunities (TWSO) and weighted score of threats (TWST). It needs to upgrade its effectiveness.2.78 generally Starbucks is not so effective in addressing its CFS which exists in its current environment. Based on the calculation. However. 3. Increase in the inflation rates creates a demand in lower priced products comes along as the most critical threats to the company.Based on the key external factors. as shown in the table above.2 THE INTERNAL ANALYSIS 3.
61 12 8 0 606587 $388973 $0.Oct 2 2005 % Oct 3 2004 % Sept 3 2003 % In dollar’ 000. Retail is meant by selling food beverage directly Strategic Management PMS 3393 17 .34 10 7 0 29 27 24 44 47 44 Analysis summary The Total net revenue for the Starbucks shows steadily increased from 2003 until 2005.49 12 7 0 420850 $265355 $0. Total net revenue can be divided into retail and specialty. between 2004 and 2003 Net revenue: Retail Specialty Total net revenue Operating expenses: Store operating expenses Other operating Depreciation and amortization expenses General and administrative development Income from equity venture $5391927 977373 $6369300 100 $4457378 836869 5294247 100 $3449624 625898 4075522 100 21 17 20 29 34 30 2165911 197024 340169 34 3 5 1790168 171648 289182 34 3 6 1379574 141346 244671 34 4 6 21 15 18 30 21 18 357114 76745 6 1 304293 59071 6 1 244550 36903 6 1 17 30 24 60 Operating income Gain on sale of investment Net earnings Net earning per sharediluted 780615 $494467 $0. between 2005 and 2004 Diff.The big increase from 2003 to 2004 could be due to the major customer demand and customer royalty for the product. except per share amounts Diff.
While the shareholder is important to any company. the net earnings of share diluted of the company increased from $0. It could be because of the performance of the company is going concern. As observed. reaching $0. This is because of the company performance in achieving target. It is shown that from 2003 to 2005 the income is increased. The net earnings per share increased by 44% from 2003 to 2004 and increased by 24% from 2004 to 2005.61 by 2005.This drastic increase is because of the purchase of Seattle's Best Coffee and Torrefazione Italia from AFC Enterprises. Another significant observation from the statement is the operating income.34 in 2003 to $0. bringing the total number of Starbucks-operated locations worldwide to more than 6.400. B) Projected Balance Sheet Fiscal years 2003-2005 Strategic Management PMS 3393 18 .49 in 2004.to customer and specialty means customer royalty. Operating income from 2003 to 2004 is increased by 44%. The sale for 2004-2005 periods is less then 10% from 2003 to 2004 which is 20%. the net earnings per share are equivalently important to the shareholders.
However shareholder equity increased by $2090634 in 2005 it’s because of the stability net earning. While the shareholder equity decreased for about 15% in comparison of 2004-2005. the shareholder Equity increased due to the increases in net earning for the company.In millions. except For per Share Items Oct 2 2005 Different Between 2004 and2005 % Oct 3 2004 Different Between2004 and2003 % Sept 30 2003 Current assets Current liability Working Capital Total assets Long-term debt(including current portion) Shareholders equity $1209334 1226996 (17662) 3514065 (11) 64 4 $1350895 746259 604636 3386541 46 23 80 22 $924029 608703 335767 2776112 3618 $2090634 17 (15) 4353 $2470211 (14) 19 5076 $2068689 Analysis summary As observed in the above table current assets increased for 2003-2004 by 46%.It could be because of company activations and reloads on Starbucks Cards. but for the year 2004-2005 is dropped by 11% because of the advertising Starbuck coffee Besides. thus it could mean that the Strategic Management PMS 3393 19 . Long term debt shown in the table dropped 14% from 2003 to 2004 previously it was known company’s net earning increases.
Liquidity ratios 2005 2004 Strategic Management PMS 3393 20 .company has extra earnings to pay off debt. Since this is a long term debt. the amount is tremendously big and by reducing it by 14% within a year shown that the development new shops really has a big impact on the company’s performance. C) Financial Ratio 1.
If the ratio is greater than one.0018 = $3618 $2090634 = 0. If the ratio is less than one. For most industrial companies.81 x The Current ratio is another test of a company's financial strength.Current ratio = = $1209334 $1226996 0.81 x for the year 2004. The ratio is 0. the smaller the current ratio can be without cause for concern. Companies with high ratios are said to be "highly leveraged.5 is an acceptable current ratio and Starbucks current ratio is 0. An acceptable current ratio varies by industry.0017 at 2005 and 0." and could be in danger if creditors start to demand repayment of debt and for Starbucks. most of the company's assets are financed through equity.99 x = = $1350895 $746259 1.0017 The Debt-to-total-assets ratio Shows the proportion of a company's assets which are financed through debt. This can be considered as a decline and should be seriously concerned and still enough to cover up current liability or short-term debt.99x for the year 2005 compared to 1. 2. Liquidity can be measured through current ratios and quick ratio. The more liquid the current assets are.0018 for the year Strategic Management PMS 3393 21 . Leverage Ratio 2005 Long term Debt-to-total-assets ratio 2004 = $4353 $2470211 = 0. It calculates how many dollars in assets are likely to be converted to cash within one year in order to pay debts that come due during the same year. 1. most of the company's assets are financed through debt. the ratio is very low at both years.
together with the leverage ratios are the key factors in determining profitability. there is a slide increase which shows the company’s efficiency on using assets has increased too.76x = = 2004 $5294247 $2035646 2. Activity analysis.81x = = 2004 $5294247 $3386541 1. Another activity measure is the Total Asset turnover ratio.2004 respectively and the ratio drop slightly.56x Activity ratios show how effectively a firm’s assets are being managed. Fixed Asset turnover ratio is one of the measures of activity. In both ratios . 3. Company’s “noinventory” policy has significant effects on its superiority. This means that most of the Starbucks assets are financed through equity and is safe if creditors start to demand repayment of debt. Based on the above tables. Profitability Ratios 2005 2004 Strategic Management PMS 3393 22 . Activity Ratio 2005 Fixed assets turnover = = $6369300 $2304731 2. 4. Starbucks has a bigger asset turnover which means that the company is using its assets more efficiently than other competitors in the industry.6x 2005 Total assets turnover = = $6369300 $3514065 1.
The greater a company's earnings in proportion to its assets. 2005 Return on equity ( ROE) = $494467 2004 = $388973 Strategic Management PMS 3393 23 .8% from total sales is the net income of year 2005. 2005 Net Profit Margin = $494467 $6369300 = 0.59 (59%) = $5294247-2191440 $5294247 = 0.14 (14%) 2004 = $388973 $3386541 = 0. the more effectively that company is said to be using its assets. This shows that the company’s profit has increased.073 (7.8%) 2004 = $388973 $5294247 = 0.58 (58%) Profitability ratios measure and explain the ability of the firm to generate income.078 (7.12(12%) The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.Gross Profit Margin = $6369300-2605212 $6369300 = 0. Yet. the percentage of profit compared with the sales is small which is 7. Gross profit margin has increased. Starbucks ROA ratio shows that in year 2005 the efficiency of using assets to generate earning has increased from 12% to 14%. 2005 Return on Total Asset( ROA) = $494467 $3514065 = 0. This shows that the company has a greater margin to cover the operating expenses and yield a profit.3%) There is a small increase in the profit after tax.
The ROE is useful for comparing the profitability of a company to that of other.16 (16%) Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Starbucks shows a drastic increase from 16% to 24% for the year 2005. 3.24 (24%) $2470211 = 0. it gives a view of the comparative earnings or earnings power of the firm.$2090634 = 0. increase the shareholders amount in future. This shows that the company is generating a good profit from the shareholders money. EPS Year 2005 2004 Earning per share $0. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased. When compared with EPS of similar companies.2. Starbucks EPS has increased and thus showing that the earning power has increased.49 The earnings per share are a good measure of profitability.61 $0.2 Internal Factor Evaluation Matrix Strategic Management PMS 3393 24 . This will.
24 /0.10 0.10 4 3 0.10+0. Price of coffee is high at Starbucks 0.10+0.24 TOTAL 1.84+0. less marketing and advertising its product 3.20+0. Starbucks products are not available at supermarket 0.08 3 0.24 / 0. Purchased Ethos healthy water for 8 million and also does not use chemical flavor for coffee.14+0. Starbucks has monopolistic advantages over its competitors.07 2 2 0. Weight Rating Weighted Score 0.21 4 0.30 5. Huge market expansion to China.10+0.14 2.60 TOTAL WEIGHTED SCORE FOR WEAKNESS / TOTAL SCORE FOR WEAKNESS TWSW: 0.30+0.30+0. Weaknesses 1. 6.12 4 0.48+0. India and Russia 2.48 0.21+0. Apply the highest standards of excellence in services.40 0.56/0. Brazil.40+0.20 0.12 Strategic Management PMS 3393 25 . Provide a great work environment 3.14 TOTAL WEIGHTED SCORE FOR STRENGHT / TOTAL SCORE FOR STRENGHT TWSS: 0.00 3. 4.30 0.Key Internal Factors Strengths 1.84 0.10 0.07+0.10+0. Launching the sales of 0.12 2 0.08 : 2.12+0.71 : 3.10 3 0.24 Frappuccino in Japan and Taiwan.
It is because Starbucks' provide a great work environment and treat each other with respect and dignity.28 : 2. Anyway. Based on the Strategic Management PMS 3393 26 . 2. But still.14 generally Starbucks is effective in addressing its CFS which exists in its current environment. Since Starbucks' has its own strength to increase the growth of the company. It focuses on its quality coffee which has the power to attract customers. quality of coffees and management of the company makes strength became as very important factor. the most advantage factor is Starbucks' company is expanding its market to china.: 0.00 is very high. Since the total weighted score is 3. Starbucks does not interest in marketing its products through advertisings a lot. Besides of that. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of business. other than that. Brazil and Russia. Starbucks Purchase Ethos healthy water for 8 million and also does not use chemical flavor for coffee.00 Internal Factor Evaluation (IFE) Matrix is a summary step in conducting an internal strategic-management audit. this means that Starbucks is still weak in identifying its weakness. Other than that. Based on key Internal Factor. This is a major strength for other competitors. The prices of coffees sold at Starbucks are higher compared with other stores.58/0. this is subject to further analysis of individual weighted score of strength (TWSS) and weighted score of weakness (TWSW). there is also has weaknesses. The strategic of Starbucks' services provided. This is also a great strength to it as its coffee’s are free from chemical flavors and it blends and mix the real hazelnuts to the coffee. and it’s also provides a basis for identifying and evaluating relationship among those area. These are very big markets and will definitely increase its growth. its weakness is also high.
Strategic Management PMS 3393 27 .calculation. . is more effective in addressing the Strength. Starbucks' must find the way to overcome weaknesses to focus on the future challenges. still. as shown in the table above.
O1.3 TOWS Analysis STRENGTHS S1. India and Russia S2. S5 Purchased Ethos healthy water for 8 million and also does not use chemical flavor for coffee. Globalization makes it easy to enter international market SO Strategies S1. Huge market expansion to China. Apply the highest standards of excellence in services.O3 Reduce the price and Advertise the products all over the places. Demand for non-chemical and healthy products Strategic Management PMS 3393 28 .W2. S4.3.O3 Do advertisements about the FREE internet connections and the excellent service they provide.O3 S5.W3. WO Strategies W1. O2.S3. S6 Launching the sales of Frappuccino in Japan and Taiwan W1 Price of coffee is high at Starbucks WEAKNESSES W2 less W3 Starbucks products are not available at supermarket marketing and advertising its product OPPORTUNITIES O1. R&D to sell products at supermarkets without reducing the quality with cheap price O4. Provide a great work environment S3. Starbucks has monopolistic advantages over its competitors.O1. Brazil. People are looking for cheap internet connections O3.O2.O4 Do Starbucks shall increase the healthy products into market as the demand for it is high. Express foods are getting famous to reduce time to be spent W1.
Many companies are pricing their products cheaper to impress customers.4 Space Matrix Strategic Management PMS 3393 29 .T1.T2 Create new complementary products which contain good quality and lower price to attract more customers. T3.S4. S2.T3 Starbucks needs to analyze the way to reduce the risks of selling its coffee products at supermarkets as customers are demanding for it.T1. T2. Increase in hypermarkets and economical supermarkets 3.ST Strategies THREATS T1.S3. WT Strategies W1.T2 Starbucks needs to change its market strategy by reducing the price to compete with the competitors.W2. Increase in the inflation rates creates a demand in lower priced products. W3.
5 4 4 13 INDUSTRY STRENGTHS RATING Starbucks Coffee Liqueur was the top selling new spirit product. the efficiency of using assets to generate earning has increased from 12% to 14%. 4 3 “Starbucks Everywhere” approach has increased foot traffic for all the stores in area.0017. Starbucks Return on Asset ratio shows that in year 2005. Starbucks net income increased to $494. Starbucks agreed to serve Starbucks Coffee in all United flights. There is an increase of 21. grossed sales over $8million annually.5 million in the year 2005 compared with $388. This makes customers easy to fine Starbucks all the places in town.FINANCIAL STRENGTHS RATING A Starbucks asset is financed through equity and is safe if creditors start to demand repayment of debt. Long term debt-to-equity ratio is only 0.3% in the income of Starbucks.9 million in 2004. 5 12 +6 = best +1= worst ENVIRONMENTAL STABILITY Strategic Management PMS 3393 30 .
RATING Starbucks products prices are high compared with competing coffee houses. forced Starbucks to increase its beverages and coffee sold at retail. doing that will put Starbucks business in risk as customers don’t know the way to brew the coffee. -4 -2 -3 -9 COMPETITIVE ADVANTAGES RATING Starbucks coffee and beverages are high in quality brewed by well trained employees. Starbucks teamed up with T-mobile WI-Fi service to provide internet access to all over Starbucks Coffeehouse There are 16. Starbucks is a customer oriented Coffeehouse. They price their products several dollars below then Starbucks price. Demand for Starbucks products to be supplied in supermarkets increase. Increase in world coffee bean price in 2001. -1 -1 -2 -2 -6 -1 = best -6= worst CONCLUSION Strategic Management PMS 3393 31 .120 Starbucks coffeehouses worldwide and plan to open another 1800 stores. But.
horizontal integration.0) = 1.5 BCG Matrix Strategic Management PMS 3393 32 .3 + (-3. product development and diversification which include related and unrelated diversification.5) = 2. The strategies that include in aggressive strategies is backward integration.3) IS AGGRESSIVE -4 -5 -6 ES Starbucks must pursue a strategy that is Aggressive.1.axis: 4. market penetration. 1.0 .5 SPACE MATRIX FS +6 CONSERVATIVE +5 +4 +3 +2 +1 CA I -6 I -5 I -4 I -3 I -2 I -1 0 -1 -2 -3 DEFENSIVE COMPETITIVE I +1 I +2 I +3 I +4 I +5 I +6 (2. 3.3 4.3.5 Y.0 .0 + (-1.3 Directional Vector Coordinates: X.5. forward integration.FS Average is 13/3 = IS Average is 12/3 = ES Average is -9/3 = CA Average is -6/4 = 4.axis: 4. market development.
Starbucks are measured to identify the stores strategic position in the Boston Consulting Matrix. Firms cash needs are high and cash generation is low. This division decides to strengthen on pursuing an intensive strategy. or Horizontal Integration Market Penetration Market Development Product Development Market Penetration Market Development Product Development Divestiture STARS MEDIUM QUESTION MARKS I II STARBUCKS Product Development Diversification Retrenchment Divestiture Retrenchment Divestiture Liquidation CASH COWS LOW DOGS IV III SUMMARY The Boston Consulting Group (BCG) matrix is enhancing a multidivisional firm’s efforts to formulate strategies. identifies best long-run opportunities for growth and profitability. Forward. Division quadrant II. and Dogs. In division quadrant I. Cash Cows. Star Strategic Management PMS 3393 33 . were included 4 divisions which is Question Marks. shows low relatives market position.HIGH HIGH MEDIUM LOW Backward. This matrix allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate each division relative to all other divisions in the organization. high growth industry. Star. The BCG matrix.
in quadrant IV Dogs have low relative market share position and compete in a slow or no market growth industry.1 Corporate Level Strategic Management PMS 3393 34 .000 in year 2004. Next in quadrant III. While. this division is in high relative market share and industry growth rate and subsequently they received substantial investment.000.000 in year 2005. Moreover. divested or trimmed down the retrenchment. $6369. 4. profitable divisions. In convince of substantial investment to maintain or strengthen their dominant positions. Starbucks Income Statements shows the Net Revenue were consecutively increased between the years 2003 until 2005. Finally.3%. market penetration. This divisional are weak into internal and external position and often liquidated. backward. to become viable. In conclusion. market development and product development are will be considered. The revenues on the year 2003 is $4075.while this division will be managed to maintain strong position for as long as possible.It determinant HIGH position of industry sales growth rate. This division represents the Starbucks long-run opportunities for the growth and profitability. Cash Cows with high relative market share position but compete in a low growth industry . the industry sales growth rate between year 2004 and 2005is 56. The divisions are forward. and it determinant that relative share position is HIGH. Besides that. Retrenchment can be best strategy to pursue because many dogs bounced back.division is high relative market share and high industry growth rate. and horizontal integration. the highest scored is 3.5.0 MAJOR ISSUES 4. Starbucks were identified in STAR division. after strenuous asset and cost reduction. In contrast. while $2191.
Strategic Management PMS 3393 35 .7 million on advertising in fiscal 2005. People are also nowadays looking forward for cheap products. Therefore. This will increase the quality of the product as well as the price of the product. it also affects gross profit of Starbucks. Starbucks’ coffees price much expensive than other market competitor product. 4.6 million in fiscal 2003. The percentages of the profit increased from 58% in year 2004 to 59% in year 2005. up from $49. Even though Starbucks has its own customer who spends their money to get the quality coffee. this will be an advantage of the competitors.2 Functional Level Starbucks have poor marketing strategy on advertising. it is because Starbucks’ purchased only high quality coffee beans. The company spent total of $87. In this way. while some groups of people willing to support the advertisement for timing just to taste the drink for free. the advertisement ends until they drink the coffee. This would because of lack of marketing strategy in advertising. the study does not show drastic increased between year 2004 and 2005. As Starbucks have many competitors. The chances to attract valuable customers are very low. It show Starbucks does not emphasize on funding the money into advertisement. They prefer to build the brand by promoting the drinks cup-by-cup with customers. it still has to look for the other people who are running to the next store.
It will cause the taste of the coffee will be different and the coffee beans would not be fresh as grinded beans. Strategic Management PMS 3393 36 . the packaging coffee in supermarket did not have same taste as coffee which mixed in the Starbucks. Customer’s satisfaction on the coffee will badly affect and as well as demand of the Starbucks coffee. In addition. They are very concern on quality of the coffee. Starbucks does not emphasize in distributing their products to supermarkets. the organization did not show a proper guideline to mix the coffee to customer. Therefore. if the coffees were packaged into plastic bags the mixing of the beans will not be as accurate.
Distribute packaging of Starbucks instant coffee will definitely increase the sales as it is a demand from customers. do road shows.2 BUSINESS LEVEL Large companies like Starbucks can effectively pursue Focus-Based Strategy in conjunction with differentiation or cost leadership based strategy. Market penetration and market development will help to increase the sales and reduce the weakness in Starbucks. They also can do promotion or promote packages of coffee set to impress customers. such as McDonald promoting their product. Being a lower cost store will increase the difference between Starbucks and other stores. give the brochures. Strategic Management PMS 3393 37 . 5. Starbucks’ coffee is world’s preeminent global brand.0 RECOMMENDATION 5.1 CORPORATE LEVEL Reduce their price by producing a new product of coffee using cheaper beans or may come out with special discounts promotions to increase the sales. so that public come to know more about Starbucks details. If the challenge was met successfully. in all likelihood company’s best years lay on the strategic road ahead.3 FUNCTIONAL LEVEL Advertisement can develop through internet that services convinced for users to access. therefore Starbucks must pursue focus strategy to increase its strength. 5. Starbucks’ should decrease price of the coffee to face competition from nationwide coffee manufactures. Starbucks competitors are attempting to specialize in the coffee business. At present.5.
Introducing accurate mixing level of the coffee in a tea bag style will increase the sales at supermarkets. Strategic Management PMS 3393 38 . Packing it together with the guidelines on mixing coffee beans and sugars with milk to result same taste of coffee will never reduce the quality of the coffee. . Providing proper steps to customer will make a better quality of coffee indeed.
Outstanding Quality of the coffee brewed Excellent service provided at the stores Fast growth of new stores all around the world These factors not only have increased the sales but also the reputation among the coffee lovers.0 CONCLUSION Starbucks success is achieved through a few factors. as Starbucks have a good financial capacity with good strategies.6. Starbucks encounters aggressive competition in all areas of its business activity. Strategic Management PMS 3393 39 . Anyway. The market for each of their business segments are characterized by vigorous competition among major corporations with long established positions and a large number of new and rapidly growing firms. it can overcome all the competitors to shine high as the first class coffee purveyor.
Strategic Management PMS 3393 40 .
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